Abstract
In a continuous-time Itô process market model with frictions in the form of percentage management costs and a higher interest rate for borrowing than for lending, the range of arbitrage-free prices of American Contingent Claims(ACCs) is derived, based on the principle of absence of arbitrage. Using the martingale approach, we obtain the upper and lower hedging price of ACCs.
Original language | English |
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Pages (from-to) | 435-444 |
Number of pages | 10 |
Journal | Indian Journal of Pure and Applied Mathematics |
Volume | 38 |
Issue number | 5 |
Publication status | Published - Oct 2007 |
Keywords
- Contingent claims
- Doob-Meyer decompositions
- Hedging
- Pricing